RESEARCH PAPER ON TAX IMPLICATIONS ON THE INTRODUCTION OF

SOCIAL STOCK EXCHANGE IN INDIA AND POTENTIAL CHALLENGES

COURSE NAME: TAXATION

Course Instructor: Professor Neha Pathakji

3rd year – 6th semester

Name: Ronit Bojja

Roll No: 2020-5LLB-117

NALSAR University of Law

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TABLE OF CONTENTS
TABLE OF CONTENTS.................................................................................................................1
INTRODUCTION...........................................................................................................................3
WORLD.......................................................................................................................................3
INDIAN CONTEXT....................................................................................................................4
THE INCEPTION OF SSE -SOCIAL VENTURE CONNEXION................................................4
BRIEF HISTORY........................................................................................................................5
RULES, ANALYSIS, AND IMPLICATIONS...........................................................................5
PROBLEMS.................................................................................................................................6
PUBLIC SSE – IMPACT INVESTMENT EXCHANGE...............................................................7
BRIEF HISTORY........................................................................................................................8
LEGAL IMPLICATIONS............................................................................................................8
PROBLEMS.................................................................................................................................8
INDIAN SOCIAL STOCK EXCHANGE POTENTIAL................................................................9
INTRODUCTION AND BENEFITS........................................................................................10
POSSIBLE CHALLENGES......................................................................................................11
CONCLUSION..............................................................................................................................11

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INTRODUCTION
WORLD
Social stock exchanges (SSEs) are a type of stock exchange that focus on promoting investment
in social enterprises, non-profits, and other organizations that prioritize social or environmental
impact alongside financial returns. SSEs provide a platform for investors to invest in businesses
and organizations that align with their values and social objectives. The SSE would function as a
separate segment within the existing stock exchange and help social enterprises raise funds from
the public through its mechanism1.

The idea of SSEs originated in the early 2000s, with the aim of creating a market that
could support and finance social enterprises, which often struggle to access traditional sources of
funding. The concept gained traction in 2007, when a report by the UK-based Social Investment
Task Force recommended the establishment of an SSE to support social enterprises in the UK.
The first SSE was launched in Canada in 2013, with the establishment of the Social Venture
Exchange (SVX) in Toronto2. The SVX is a platform that connects social enterprises with
investors who are interested in generating social and environmental impact alongside financial
returns. Since then, other SSEs have been launched in various parts of the world, including the
United Kingdom, Singapore, and Brazil. Social stock exchanges (SSEs) have gained traction in
recent years due to a growing awareness of the need for sustainable and responsible investment.
Investors are increasingly seeking to align their investments with their social and environmental
values, and SSEs provide a platform for them to do so. In addition, SSEs address the funding gap
faced by social enterprises and non-profits, which often struggle to access traditional sources of
funding. SSEs provide these organizations with a new source of capital, while also providing
investors with an opportunity to generate both financial returns and social impact.

The emergence of SSEs is also driven by regulatory changes aimed at promoting social
and environmental responsibility in the financial sector. In many countries, regulators have
introduced new rules and guidelines requiring institutional investors to consider social and

1
https://www.sebi.gov.in/reports-and-statistics/reports/jun-2020/report-of-the-working-group-on-social-stock-
exchange_46751.html
2
https://economictimes.indiatimes.com/markets/stocks/news/nse-gets-in-principle-nod-to-set-up-social-stock-
exchange-as-separate-entity/articleshow/96430286.cms
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environmental factors in their investment decisions. For example, the European Union has
introduced regulations requiring asset managers to disclose how they integrate sustainability
risks into their investment decisions. In addition, the United Nations has launched the Principles
for Responsible Investment, which provide a framework for investors to integrate environmental,
social, and governance factors into their investment processes. These regulatory changes have
created a favorable environment for SSEs to emerge and gain popularity. SSEs provide a
mechanism for investors to invest in organizations that prioritize social and environmental
impact, while also providing a transparent and regulated platform for these organizations to raise
funds. The legal framework for SSEs varies depending on the jurisdiction, but in general, SSEs
are subject to the same regulatory requirements as traditional stock exchanges. In addition, SSEs
may be subject to specific regulations or tax incentives aimed at promoting social and
environmental impact investing.

INDIAN CONTEXT
The idea of implementing a Social Stock Exchange (SSE) in India was first proposed in the
Union Budget of 2019 by the Finance Minister, Nirmala Sitharaman. The proposal aimed to
create a platform that would enable social enterprises and non-profit organizations to raise funds
from impact investors and facilitate the growth of the social sector in India3.

The proposal was further elaborated on in a consultation paper released by the Securities
and Exchange Board of India (SEBI) in June 2020.4 The paper outlined the concept of an SSE
and sought feedback from stakeholders on various aspects of its design and implementation. The
paper proposed that the SSE would be a dedicated platform for social enterprises and non-profits
to raise funds from impact investors, with a focus on promoting social and environmental impact
alongside financial returns.

Overall, SSEs represent an emerging trend in the financial sector, as investors increasingly seek
to align their investments with their social and environmental values. As the concept continues to
evolve, it has the potential to play an important role in driving social and environmental change
through the power of finance

3
https://www.nseindia.com/sse
4
https://svx.ca/about/
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THE INCEPTION OF SSE -SOCIAL VENTURE CONNEXION
BRIEF HISTORY
The Social Venture Connexion (SVX) is a platform that was launched in 2013 in Canada to
facilitate impact investing in social enterprises and non-profit organizations. The SVX is an
online platform that allows social enterprises and non-profits to raise capital from accredited
investors and provides investors with access to investment opportunities that generate both
financial returns and social impact. The development and growth of the SVX in Canada was
driven by several factors, including the increasing demand for impact investing among investors
and the need for social enterprises and non-profits to access capital more efficiently. The SVX
was created as a joint initiative between the MaRS Discovery District and TMX Group, which
operates the Toronto Stock Exchange.
The SVX is regulated by the Ontario Securities Commission (OSC) and operates under a
registered exempt market dealer, MaRS VX. The OSC approved the registration of MaRS VX as
an exempt market dealer in 2015, making it the first registered dealer in Canada to focus
exclusively on impact investing. Since its launch, the SVX has facilitated over $60 million in
investments in social enterprises and non-profits. The platform has also expanded beyond
Ontario to other provinces in Canada, including British Columbia and Quebec. In addition, the
SVX has attracted interest from international organizations, with the launch of the Impact
Investing Hub in 2017, which provides international investors with access to impact investing
opportunities in Canada.
Overall, the development and growth of the SVX in Canada has been driven by the
increasing demand for impact investing and the need for social enterprises and non-profits to
access capital more efficiently. The platform has been successful in facilitating investments in
social enterprises and non-profits and has expanded its reach beyond Ontario to other provinces
and international investors. The regulatory framework provided by the OSC has also played a
key role in supporting the growth of the platform and the impact investing sector in Canada.
RULES, ANALYSIS, AND IMPLICATIONS
The implementation of a social venture exchange (SVX) in Canada has significant implications
for tax regulations, both for social enterprises and non-profits that raise funds through the SVX
and for investors who make investments through the SVX. This analysis will examine some of
the key tax implications of implementing an SVX in Canada, with citations to support the
discussion.
Investments made through the SVX would be subject to different tax treatments,
depending on the type of investment made. Social enterprises and non-profits may qualify for tax
incentives, such as tax credits or deductions, which would vary depending on the investment
made. For example, investments in designated community development corporations (CDCs)
may qualify for a federal tax credit of up to 15%.

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 Dividends and capital gains earned through investments made on the SVX would be
subject to income tax and capital gains tax, respectively. However, the tax treatment of dividends
and capital gains would depend on the type of investment and the structure of the investment
vehicle. If the investment is made directly in a social enterprise or non-profit, any dividends
received may be subject to income tax, while capital gains may be subject to capital gains tax. If
the investment is made through a fund or a trust, the tax treatment of dividends and capital gains
would depend on the structure of the fund or trust5.
Social enterprises and non-profits that raise funds through the SVX may be eligible for
tax-exempt status under Canadian tax law. To qualify for tax-exempt status, the organization
must meet certain requirements, such as operating exclusively for charitable or non-profit
purposes and not engaging in activities that generate personal profit for its members6.
Furthermore, compliance with Canadian tax regulations is crucial for social enterprises
and non-profits that raise funds through the SVX. These organizations must comply with tax
regulations such as filing tax returns and complying with reporting requirements. Failure to
comply with tax regulations could result in penalties and other legal consequences (Social
Venture Connexion, 2016). Investors who make investments through the SVX may be subject to
tax on any dividends or capital gains earned, depending on the type of investment made and the
structure of the investment vehicle. However, investors may also be eligible for tax incentives,
such as tax credits or deductions for investments made in social enterprises and non-profits
through the SVX7.
In conclusion, the implementation of an SVX in Canada has significant implications for
tax regulations. The tax treatment of investments, dividends, and capital gains, as well as
eligibility for tax-exempt status and compliance with tax regulations for social enterprises and
non-profits that raise funds through the SVX, should be carefully considered. Investors who
make investments through the SVX should also be aware of the tax implications of their
investments.
PROBLEMS
Impact investing platforms, such as the Social Venture Connexion (SVX), have faced several
legal and regulatory challenges since their establishment in Canada. This section will discuss the
legal problems faced by SVX.
One of the significant challenges faced by SVX is the limited investor awareness of
impact investing and the role of social enterprises in creating social and environmental impact.
This has resulted in limited investor participation on the platform. According to a report by the
MaRS Centre for Impact Investing, a lack of investor knowledge of impact investing was cited as
a significant challenge by several stakeholders in the impact investing industry8.

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Principles of Canadian Income Tax Law, 10th Edition by Jinyan Li, Joanne E. Magee, and Peter Hogg

6
https://www.canada.ca/en/revenue-agency/services/charities-giving/charities/policies-guidance.html
7
https://svx.ca/faq/
8
https://impactinvesting.marsdd.com/
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 SVX operates in a highly regulated industry, which poses several regulatory barriers for
social enterprises seeking to raise capital through the platform. For instance, social enterprises
are subject to advertising restrictions under Canadian securities laws, which limits their ability to
promote their securities to potential investors. Additionally, social enterprises are subject to
significant disclosure requirements and compliance costs, which can be challenging for early-
stage enterprises with limited resources.
Another challenge faced by SVX is the limited availability of investment opportunities on
the platform. This is mainly because the platform only accepts social enterprises that meet
specific social and environmental impact criteria, which limits the pool of potential investment
opportunities. According to a report by the Impact Investing Institute, a lack of investment-ready
social enterprises is a significant challenge faced by the impact investing industry in Canada9.
Moreover, social enterprises lack access to traditional sources of capital, such as banks
and venture capitalists. However, SVX faces challenges in connecting these social enterprises
with impact investors, thereby limiting their access to capital. According to a report by the
Canadian Community Economic Development Network, limited access to capital is a significant
challenge faced by social enterprises in Canada10.
Finally, impact investments are often illiquid, meaning they cannot be easily bought or
sold on secondary markets. This can make it difficult for investors to exit their investments,
which can limit the pool of potential investors for social enterprises seeking capital through
SVX. According to a report by the Global Impact Investing Network, limited liquidity is a
significant challenge faced by the impact investing industry worldwide11.

In conclusion, the legal challenges faced by SVX are not unique to the impact investing industry
and are faced by most impact investing platforms around the world. However, SVX is actively
working to overcome these challenges and increase investor participation on the platform.

9
https://www.marsdd.com/wp-content/uploads/2014/09/Impact-Investing-in-Canada-State-of-the-Nation-2014-
EN.pdf
10
https://thegiin.org/research/publication/impinv-survey-2020/
11
https://www.researchgate.net/publication/315997195_Social_Enterprises_in_Canada_An_Introduction
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PUBLIC SSE – IMPACT INVESTMENT EXCHANGE
BRIEF HISTORY
The Impact Investment Exchange (IIX) was launched in 2021 as a non-profit organization, with
the aim of promoting social entrepreneurship and creating a more inclusive society by providing
a new platform for social enterprises to raise capital from investors who were interested in
supporting their social mission.
The launch of IIX was the culmination of the Social Enterprise (SE) Blueprint launched
by the Singapore government in 2018, which identified limited access to financing and a lack of
visibility and recognition as key challenges faced by social enterprises in Singapore. To address
these challenges, the government committed to creating a new platform for social enterprises to
access capital and raise their profile, which led to the development of IIX after several years of
planning and preparation.
IIX has been successful in attracting high-quality social enterprises and diverse investors,
including institutional investors, family offices, and individual investors, in its first year of
operation. However, it has also faced several challenges, such as attracting enough social
enterprises to the platform and raising enough capital. Additionally, IIX has been criticized for
its limited impact on the wider social enterprise sector in Singapore.
LEGAL IMPLICATIONS
From a legal perspective, one of the primary tax implications of IIX is related to the tax
treatment of investments made through the platform. Investors who invest in social enterprises
through IIX are eligible for tax benefits under the Social Impact Investment Tax Relief (SIITR)
scheme introduced by the Singapore government in 2019. The scheme provides tax relief for
investors who invest in social enterprises that have been approved by the Commissioner of
Inland Revenue. The tax relief is available for qualifying investments up to SGD 1.5 million per
year, with a maximum tax relief of SGD 250,000 per year for each investor12.
Another tax implication of IIX is related to the tax treatment of social enterprises listed
on the platform. Social enterprises that are listed on IIX are subject to the same tax laws and
regulations as any other company in Singapore. This includes corporate income tax, goods and
services tax, and withholding tax. However, social enterprises that meet certain criteria, such as
those involved in healthcare, education, or charitable activities, may be eligible for tax
exemptions or incentives under the Income Tax Act or other tax laws and regulations13.
In conclusion, the launch of IIX has provided a new platform for social enterprises to
raise capital and has attracted diverse investors who are interested in supporting their social
mission. From a legal perspective, IIX has several tax implications, including tax relief for
investors under the SIITR scheme and tax treatment for social enterprises listed on the platform.

12
https://www.iras.gov.sg/taxes/individual-income-tax/basics-of-individual-income-tax/special-tax-schemes/angel-
investors-tax-deduction-scheme-(aitd)
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https://iixglobal.com/
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While IIX has faced some challenges, it has the potential to further promote social
entrepreneurship and create a more inclusive and sustainable society in Singapore.
PROBLEMS
Despite its potential benefits, the IIX has faced some challenges, particularly in relation to tax
issues. These challenges include:
 Limited tax incentives: While the Singaporean government offers tax incentives for
social enterprises, such as the Social Impact Investment Tax Relief (SIITR) scheme, these
incentives are not specifically targeted at IIX-listed social enterprises. This may limit the
attractiveness of the IIX to investors who are looking for tax benefits.
 Complex tax regulations: The IIX is subject to a range of tax regulations in Singapore,
which can be complex and time-consuming to navigate. This can create challenges for
social enterprises that may not have the resources or expertise to comply with tax
regulations.
 Difficulty in measuring social impact for tax purposes: Measuring social impact for tax
purposes can be challenging, particularly for social enterprises that have a dual purpose
of generating social impact and financial returns. This may create uncertainty around the
tax treatment of IIX-listed social enterprises.
 Limited tax guidance: Given that the IIX is a new platform, there is a lack of guidance
from tax authorities on how IIX-listed social enterprises should be treated for tax
purposes. This can create uncertainty for social enterprises and investors and may limit
the growth and development of the IIX.
 Limited tax planning opportunities: The IIX is a new platform, and the trading volume
may be limited, which can create challenges for investors who may not be able to sell
their shares easily. This may limit the opportunities for tax planning and optimization.
Overall, the tax implications of the IIX are complex and may pose challenges for social
enterprises and investors. To address these challenges, it is important for tax authorities and
policymakers to provide clear guidance on the tax treatment of IIX-listed social enterprises and
to consider targeted tax incentives for these enterprises. In addition, social enterprises may need
to invest in tax expertise and planning to ensure compliance with tax regulations and to optimize
their tax position.

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INDIAN SOCIAL STOCK EXCHANGE POTENTIAL
INTRODUCTION AND BENEFITS
The introduction of a social stock exchange (SSE) in India has the potential to promote impact
investing and social entrepreneurship, while also providing tax benefits to social enterprises and
investors. The Securities and Exchange Board of India (SEBI) has proposed the establishment of
an SSE in India, which would provide a platform for social enterprises to raise capital from
investors who are looking to invest in businesses that have a positive social impact.
One of the main benefits of an SSE in India is the potential for social enterprises to
access a new source of capital. Currently, social enterprises in India rely primarily on grants and
donations, which can be limited and unstable sources of funding. An SSE could provide a more
sustainable source of capital for social enterprises by connecting them with impact investors who
are looking to invest in businesses that have a positive social impact14.
In addition to the potential for increased access to capital, social enterprises listed on the
SSE may also be eligible for tax benefits. The government of India has already introduced tax
incentives for social enterprises, including the provision of tax deductions under Section 80G of
the Income Tax Act for donations made to certain charitable organizations. It is likely that social
enterprises listed on the SSE would also be eligible for these tax benefits15.
Furthermore, the introduction of an SSE in India could provide a platform for impact investors
to invest in businesses that have a positive social impact, while also earning financial returns.
This is because social enterprises listed on the SSE would be required to meet certain social
impact criteria, which would ensure that they are generating a positive social impact while also
generating financial returns for investors.
However, there are also potential tax implications that need to be considered for social
enterprises and investors listed on the SSE. One potential issue is the lack of targeted tax
incentives specifically for social enterprises listed on the SSE. While there are already tax
incentives available for social enterprises in India, it is not clear whether these incentives will be
extended to social enterprises listed on the SSE.
In addition, social enterprises and investors listed on the SSE may need to navigate complex tax
regulations, which can be particularly challenging in India where tax regulations can be complex
and subject to frequent changes. Social enterprises listed on the SSE may need to invest in tax
expertise and planning to ensure compliance with tax regulations and to optimize their tax
position.
Overall, the introduction of an SSE in India has the potential to provide significant benefits for
social enterprises and impact investors. However, it is important for policymakers to consider
targeted tax incentives for social enterprises listed on the SSE, and for social enterprises and

14
https://www.sebi.gov.in/sebi_data/meetingfiles/feb-2022/1645691296343_1.pdf
15
https://economictimes.indiatimes.com/opinion/et-commentary/why-india-needs-a-separate-stock-exchange-and-
regulatory-framework-for-ipos-by-ngos/articleshow/99325308.cms
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investors to invest in tax expertise and planning to ensure compliance with tax regulations and to
optimize their tax position.

POSSIBLE CHALLENGES
While the concept of social stock exchanges is not new, there have been challenges faced by
similar platforms in other countries, particularly in relation to tax implications.
One of the major challenges faced by social stock exchanges in other countries is the lack
of tax incentives specifically targeted at social enterprises listed on the exchange. This has made
it difficult to attract investors who are looking for tax benefits. In the UK, for example, the Social
Stock Exchange was launched in 2013 but faced challenges in attracting investors due to the
limited tax incentives available for social enterprises listed on the exchange. While there are tax
incentives available for social enterprises in India, such as the provision of tax deductions under
Section 80G of the Income Tax Act, it remains unclear whether these incentives will be extended
to social enterprises listed on the proposed social stock exchange.
In addition to the lack of targeted tax incentives, social enterprises listed on the social
stock exchange may also face challenges in navigating complex tax regulations. In the UK, for
example, the Social Stock Exchange reported that one of the main challenges faced by social
enterprises listed on the exchange was the complexity of tax regulations. This is particularly
relevant in the Indian context, where tax regulations can be complex and subject to frequent
changes. Social enterprises listed on the social stock exchange may need to invest in tax
expertise and planning to ensure compliance with tax regulations and to optimize their tax
position.
Another challenge faced by social stock exchanges is measuring social impact for tax
purposes. This is because social impact can be difficult to quantify and measure, particularly for
social enterprises that have a dual purpose of generating social impact and financial returns. In
the UK, the Social Stock Exchange established a set of social impact criteria that companies
must meet to be listed on the exchange. In India, social enterprises may need to establish clear
metrics for measuring social impact that are acceptable to tax authorities to ensure that they are
eligible for tax incentives16.
In addition, there may be limited tax planning opportunities for investors in the social
stock exchange. This is because the trading volume may be limited, which can create challenges
for investors who may not be able to sell their shares easily. This may limit the opportunities for
tax planning and optimization.
To address these challenges, it is important for policymakers in India to consider targeted
tax incentives for social enterprises listed on the social stock exchange, and for social enterprises
and investors to invest in tax expertise and planning to ensure compliance with tax regulations

https://economictimes.indiatimes.com/markets/stocks/news/social-stock-exchange-to-boost-investability-of-social-
16

impact-projects/articleshow/98406672.cms

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and to optimize their tax position. Clear guidance from tax authorities on the tax treatment of
social enterprises listed on the social stock exchange would also be helpful in addressing these
challenges.

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CONCLUSION
In conclusion, the establishment of a Social Stock Exchange (SSE) in India can bring several
benefits for social enterprises and impact investors. The SSE would provide a platform for social
enterprises to raise capital from investors who are looking to invest in businesses that have a
positive social impact. It would also promote impact investing and social entrepreneurship, while
also providing tax benefits to social enterprises and investors.
However, it is also important to consider potential problems that have arisen in the past in
relation to SSEs in other countries. The SSEs established in other countries have faced issues
related to lack of liquidity, difficulty in measuring social impact, and complex tax regulations. It
is crucial that India considers these problems and works towards creating a robust and effective
SSE that can overcome these challenges.
In addition, it is important for policymakers to consider targeted tax incentives for social
enterprises listed on the SSE, and for social enterprises and investors to invest in tax expertise
and planning to ensure compliance with tax regulations and to optimize their tax position.
Overall, the SSE can be a significant step towards promoting sustainable development in India.
It can provide a more sustainable source of capital for social enterprises, promote impact
investing, and generate both financial returns and social impact. However, careful consideration
of legal and regulatory frameworks and potential issues is essential to ensure that the SSE can
function effectively and achieve its goals.

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